MicroStrategy’s Bitcoin (BTC) buying spree has been a “key driver of its stock’s outperformance,” and the company should consider “beginning to generate yield by lending out a portion of its Bitcoin holdings,” according to a Sept. 24 analyst report shared with Cointelegraph.
The company’s stock, MSTR, could be worth $215 per share if MicroStrategy continues to leverage its balance sheet to buy more BTC and starts lending out the digital currency for low-risk yield, according to Benchmark fintech analyst Mark Palmer.
Shares of MSTR currently trade at around $153 after a 10-for-1 stock split on Aug. 9. MicroStrategy’s core business is enterprise software but its public market valuation is mainly from holding BTC, which it started accumulating in 2020.
On Sept. 18, executive chairman Michael Saylor said in a podcast that Bitcoin could become a form of “perfected capital” that serves as a store of value and generates low-risk yield from digital banking services, such as lending and borrowing.
Revenues from MicroStrategy’s core business are down year-over-year. Source: MicroStrategy
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Despite investor concerns about MSTR’s valuation — the stock trades at a premium to the value of its BTC holdings — “we believe the flywheel effect seen in its Bitcoin acquisition strategy helps to support the argument that the premium is justified and that it is a feature of that strategy rather than a bug,” said Saylor.
During its Aug. 1 earnings call, MicroStrategy doubled down on BTC buying by committing to a unique performance metric: Bitcoin yield.
Bitcoin yield measures the ratio of BTC holdings to outstanding shares and effectively sets BTC-per-share as a lodestar for corporate performance.
In an Aug. 2 analyst note, Palmer said that the idea is to “demonstrate the efficacy of its Bitcoin acquisition strategy and its use of intelligent leverage.”
On Sept. 20, Microstrategy completed a $1.01 billion convertible note offering, allocating proceeds for Bitcoin purchases and debt repayment.
MicroStrategy uses “Bitcoin Yield” as a lodestar for performance. Source: MicroStrategy
“A portion of the proceeds from MSTR’s latest convertible bond were used to retire $500 million of 6.125% senior secured notes due 2028,” Palmer told Cointelegraph in an email, adding:
“As a result of the notes’ retirement, the 69,080 bitcoins that MSTR had pledged to collateralize them — holdings with a market value of ~$4.4 billion — became unencumbered.”
This creates opportunities for MicroStrategy, Palmer said, especially with institutional cryptocurrency custodians proliferating in the United States and mounting institutional interest in crypto as an asset class.
“With the SEC’s increased flexibility regarding digital assets, as well as some major institutions’ newfound interest in the crypto space, it appears likely that the company may soon have available to it large institutional counterparties to which it could lend a portion of its bitcoins with something close to certainty that those loans would be repaid,” according to Palmer’s Sept. 24 note.
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